Assignment Questions
Question 1 – 10 marks
The table sets out the demand and supply schedules for chewing gum.
Price
(cents per pack) Quantity demanded Quantitysupplied (millions of packs a week) 20 180 60 40 140 100 60 100 140 80 60 180 100 20 220
Draw a graph of the market for chewing gum. What are the equilibrium price and quantity? Mark the equilibrium price and quantity in the graph. (2 marks)
Suppose that the price of chewing gum is 70¢ a pack. Describe the situation in the chewing gum market (shortage or surplus and why?) and explain how the price adjusts. (2 marks)
Suppose that the price of chewing gum is 30¢ a pack. Describe the situation in the chewing gum market (shortage or surplus and why?) and explain how the price adjusts. (2 marks)
Suppose a fire destroys some factories that produce chewing gum and the quantity of gum supplied decreases by 40 million packs a week at each price. Explain what happens in the market for gum and illustrate the changes on your graph. (4 marks)

Question 2 – 10 marks
The demand schedule for computer chips is in the table.
What happens to total revenue if the price falls from $400 to $350 a chip and from $350 to $300 a chip?
(1 marks)
At an average price of $350, is the demand for chips elastic, inelastic, or unit elastic? Use the total revenue test to answer this question. (1 marks)
At $250 a chip, is the demand for chips elastic or inelastic? Use the total revenue test to answer this question. (2 marks)
When Alex’s income was $3,000, he bought 4 bagels and 12 donuts a month. Now his income is $5,000 and he buys 8 bagels and 6 donuts a month.
Calculate Alex’s income elasticity of demand for bagels. (1 marks)
Calculate Alex’s income elasticity of demand for donuts. (1 marks)
Suppose a drought cuts the quantity of wheat grown by 2 per cent.
If the price elasticity of demand for wheat is 0.5, by how much will the price of wheat rise? (1 marks)
If pasta makers estimate…